Employee Retention Tax Credit Update

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Updated: 2/16/2021

Under the CARES Act, employers who received a PPP loan were not eligible for the Employee Retention Tax Credit (ERTC).  This qualification was repealed with the Consolidated Appropriation Act of 2021.  Below is a summary of the key provisions of the credit, reflecting changes made by the new law:

Time period credit is available

  • Qualified wages paid after March 12, 2020, and before July 1, 2021

Eligibility requirements for 2020

  • Applies to wages paid by a business with operations that were either fully or partially suspended by a COVID-19 governmental order and only for wages paid during the period the order is in force;

OR

  • Applies to wages paid during 2020 beginning with the any quarter where gross receipts were less than 50% of gross receipts for the same quarter in 2019, and including each subsequent quarter until after the quarter in which gross receipts are greater than 80% of gross receipts for the same quarter in 2019.

Eligibility requirements for 2021

  • Applies to wages paid by a business with operations that were either fully or partially suspended by a COVID-19 governmental order and only for wages paid during the period the order is in force;

OR

  • Applies to wages paid during the first two quarters of 2021 where gross receipts are less than 80% of gross receipts for the same quarter in 2019 (or 2020 if not in business in 2019).

Amount of credit

  • 2020 – Credit is 50% of qualified wages paid to an employee, plus the cost to continue providing health benefits to the employee.  Annual cap of $5,000 per employee.
  • 2021 – Credit is 70% of qualified wages paid to an employee, plus the cost to continue providing health benefits to the employee.  Quarterly cap of $7,000 per employee for each of the first two quarters of 2021 for a possible $14,000 credit per employee.  The 2021 credit is available even if the employer received the $5,000 credit for wages paid to such employee in 2020.

Size of employer

  • 2020 – A company with 100 or fewer full-time equivalent employees is eligible for the credit, whether or not the employee was working.  A company with more than 100 employees can only take the credit for wages paid to an employee who is not working.
  • 2021 – A company with 500 or fewer full-time equivalent employees is eligible for the credit, whether or not the employee was working. 

PPP loan interplay

  • Employers that received a PPP loan in 2020 are now eligible to take the ERTC, so long as the same wages are not used for both the credit and PPP loan forgiveness.  In other words, if there were wages paid during the PPP loan 24-week period that exceed the amount needed to achieve 100% PPP loan forgiveness, then these additional wages can be used for the ERTC as long as the business otherwise qualifies for the credit.

Kevin manages marketing & business development at Dental Accounting Professionals LLC.

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